Phillips Curve Calculator — Inflation vs Unemployment Trade-off
Enter the long-run inflation expectation, the Phillips curve slope, the natural unemployment rate (NAIRU), and the current unemployment rate. The calculator applies the Friedman–Phelps expectations-augmented model to show implied inflation and the economy's position on the trade-off curve.
%
pp per pp
%
%
Unemployment above NAIRU — inflationary pressure is below expectations
- 1
Unemployment gap
6 − 4.5 = 1.5 - 2
Inflation impact
0.5 × 1.5 = 0.75 - 3
Implied inflation
2 − 0.75 = 1.25π = π* − β × (u − u*): inflation falls below target when unemployment exceeds NAIRU.
How does this calculator work?
π = π* − β(u − u*): when unemployment exceeds NAIRU by 1 pp, inflation falls β percentage points below expected inflation. The sacrifice ratio 1/β (typically 1.4–3.3 for advanced economies) tells you the unemployment cost of a 1 pp disinflation. NAIRU and β are both uncertain — treat outputs as scenarios, not forecasts.
Formula
How this is calculated
The original Phillips (1958) observation of an empirical inverse relationship between wage inflation and unemployment was formalised into the classical Phillips Curve. Friedman (1968) and Phelps (1967) independently showed that any exploitable trade-off is only short-run: workers and firms eventually revise inflation expectations, shifting the curve upward, so the long-run curve is vertical at the NAIRU (Non-Accelerating Inflation Rate of Unemployment). The expectations-augmented version is π = π* − β(u − u*): when unemployment equals the NAIRU, actual inflation equals expected inflation. When unemployment is above NAIRU (a "slack" economy), inflation falls below expectations; below NAIRU (a "tight" labour market), inflation rises above expectations.
The slope parameter β reflects how responsive inflation is to the unemployment gap. Empirical estimates for advanced economies typically range from 0.3 to 0.7, though the curve has appeared to flatten since the 1990s — a phenomenon debated as "the missing disinflation" and related to better-anchored expectations. The sacrifice ratio (1 ÷ β) measures the cost of disinflation: the percentage points of unemployment above NAIRU needed for one year to reduce inflation by 1 percentage point.
Limitations: the linear model is a teaching simplification. Real Phillips curves are non-linear (kinked near the NAIRU), shift with supply shocks (oil price changes, COVID-era supply disruptions), and are sensitive to how expectations are measured and anchored. The 2021–23 US inflation episode strained many models, triggering ongoing debate about structural breaks. NAIRU itself is unobserved and estimated with wide uncertainty bands.
Frequently asked questions
NAIRU (Non-Accelerating Inflation Rate of Unemployment) is the unemployment rate at which inflation neither accelerates nor decelerates — it is the long-run equilibrium of the labour market. It is not directly observable; the US CBO estimates it at ~4.4% as of 2025, but confidence intervals are wide (often ±1–2 pp). It varies over time with demographic and structural changes.
The sacrifice ratio (1/β) is the cost of disinflation: how many percentage-point years of excess unemployment are needed to reduce inflation by 1 percentage point. At β = 0.5, the sacrifice ratio is 2 — to reduce inflation by 1 pp, unemployment must be 2 pp above NAIRU for one year (or 1 pp above for two years). The Fed's 2022–23 rate hiking cycle illustrated this: unemployment rose modestly while inflation fell sharply, suggesting either a favourable supply shock or non-linearity near the NAIRU.
From the 1990s through ~2019, low inflation persisted even when unemployment fell well below NAIRU estimates — the "flattening" of the Phillips Curve. Leading explanations include: (1) better-anchored long-run inflation expectations (so π* is stable); (2) globalisation holding down wages and goods prices; (3) increased labour market flexibility. The post-COVID surge challenged these views, renewing debate about whether the curve is non-linear or the NAIRU shifted.
Also known as
TG we-Calculate Editorial Team. (2026). Phillips Curve Calculator — Inflation vs Unemployment Trade-off [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/phillips-curve-calculator
TG we-Calculate Editorial Team. "Phillips Curve Calculator — Inflation vs Unemployment Trade-off." TG we-Calculate. 2026. https://we-calculate.com/calculator/phillips-curve-calculator.
TG we-Calculate Editorial Team, "Phillips Curve Calculator — Inflation vs Unemployment Trade-off," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/phillips-curve-calculator
@misc{wecalculate_phillips_curve_calculator, title = {Phillips Curve Calculator — Inflation vs Unemployment Trade-off}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/phillips-curve-calculator}}, year = {2026}, note = {TG we-Calculate} }
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